A company flat and a company car never show up as cash in your bank account. That doesn’t stop the taxman from putting a rupee figure on them — and that figure just went up sharply.
Everything in this series so far, allowances, HRA, LTA, has come with a regime question attached: is this exempt only under the old regime, only the new, or neither? Perquisites under Income Tax Act 2025 work differently. Perquisite valuation under Income Tax Act 2025 is governed by Section 17(1) together with Rule 15 perquisite valuation rules under the Income-tax Rules, 2026, and these provisions determine how much of a non-cash employer benefit, accommodation, a company car, and more, counts as taxable salary in the first place. This isn’t an exemption question at all; it’s a valuation question, and the Rule 15 valuation itself is not dependent on whether you’ve opted for the old or new regime.
Applicability note: Section 17(1) of the Income-tax Act, 2025, corresponding broadly to Section 17(2) of the Income-tax Act, 1961, and Rule 15 of the Income-tax Rules, 2026, corresponding broadly to Rule 3 of the Income-tax Rules, 1962, apply for Tax Year 2026-27 onward. Several perquisite values have been substantially revised upward under Rule 15, most notably the company car figures, nearly tripled from the previous amounts, so treat any pre-2026 figure you see elsewhere as outdated.
Perquisite Valuation Under Income Tax Act 2025: What Section 17 Covers
Section 17(1) of the Income Tax Act, 2025 sets out what “perquisite” includes for the purposes of the Salaries head. It’s a broad list: rent-free accommodation, accommodation at a concessional rent, benefits or amenities provided free or at concessional rate to specified categories of employees, an employer discharging an obligation that was otherwise the employee’s to pay, employer-funded life assurance or annuity arrangements, specified securities or sweat equity shares such as ESOPs, and excess employer contributions to certain funds. This article covers the two most commonly encountered items, accommodation and the company car, in detail. ESOPs, loans, club memberships, and the remaining benefit categories are covered in the next part of this series.
Accommodation
Valued as a percentage of salary, or actual lease rent, depending on ownership
Company Car
Fixed monthly value if used for both official and personal purposes
Rent Free Accommodation Perquisite: Valuation Under Rule 15
How much of a company flat counts as taxable income depends first on who employs you, and then on who owns the property.
| Circumstance | Perquisite Value |
|---|---|
| Central or State Government employee | Licence fee fixed by the government, less rent actually paid |
| Other employer, property owned by employer, city population above 40 lakh | 10% of salary, less rent actually paid |
| Other employer, property owned by employer, city population 15–40 lakh | 7.5% of salary, less rent actually paid |
| Other employer, property owned by employer, other areas | 5% of salary, less rent actually paid |
| Property leased or rented by the employer | Lower of actual lease rent paid or 10% of salary, less rent actually paid by employee |
| Hotel accommodation on transfer, for more than 15 days | Lower of actual hotel charges or 24% of salary, less rent actually paid |
Accommodation provided in a hotel on transfer is not valued as a perquisite where it is provided for an aggregate period of up to 15 days. Beyond that, the prescribed valuation above applies.
Two things worth being precise about. First, “salary” for this specific formula has its own definition under Rule 15, pay, allowances, bonus, and commission, but excluding dearness allowance (unless it counts toward retirement benefits), employer PF contributions, exempt allowances, and lump-sum termination or retirement payments, a different base than the “salary” used in the HRA formula covered in Part 2, so don’t reuse one figure for both. Second, if the accommodation is furnished, add 10% per annum of the furniture’s cost to whichever value above applies, or the actual hire charges if the furniture itself is rented.
The accommodation valuation provisions do not apply to certain temporary accommodation provided at mining sites, on-shore oil exploration sites, project execution sites, dam sites, power generation sites, and off-shore sites, subject to the conditions specified in Rule 15: the plinth area must not exceed 1,000 square feet, and the site must either be at least 8 kilometres from any municipal or cantonment limit, or classified as a remote area. And where the same accommodation continues for more than one Tax Year, the value is capped at the first year’s figure, adjusted only by the Cost Inflation Index, so it can’t silently escalate simply because your salary has grown. If an employee is transferred and temporarily retains the old accommodation while receiving accommodation at the new place of posting, the lower-valued accommodation is considered for up to 90 days; after that, both accommodations are valued under the prescribed rules.
Ritika works for a private company in Mumbai, a city with a 2011 Census population exceeding 40 lakh, and draws a salary of ₹12,00,000 a year for this specific computation. Her employer owns the flat she lives in and charges her no rent. Her perquisite value is 10% of ₹12,00,000, which is ₹1,20,000 for the year, added to her taxable salary. If her employer had instead leased the flat for ₹1,50,000 a year and charged her nothing, her perquisite value would be the lower of that ₹1,50,000 actual lease rent or 10% of her salary, ₹1,20,000, meaning the leased scenario would actually value the perquisite lower than the employer-owned scenario in this specific case.
Company Car Perquisite Valuation Under Rule 15
The car perquisite depends on three variables: who owns the car, how it’s actually used, and who pays for running it. Get any one of these wrong and the valuation changes substantially.
| Use of Employer-Owned Car | ≤1.6L or Electric | >1.6L |
|---|---|---|
| Wholly official duty, documented | Nil | Nil |
| Wholly personal use, expenses met by employer | Actual expenditure incurred by the employer, plus 10% p.a. wear and tear, less any amount recovered from the employee | |
| Mixed use, running costs met by employer | ₹5,000/month | ₹7,000/month |
| Mixed use, personal-portion running costs met by employee | ₹2,000/month | ₹3,000/month |
Add ₹3,000 a month to either mixed-use figure if the employer also provides a chauffeur. For a car the employee owns but the employer reimburses running costs on, wholly-official use with proper documentation is again nil; mixed use is valued at the employer’s actual reimbursement, reduced by the same ₹5,000 or ₹7,000 figure that applies to an equivalent employer-owned car. For an employee-owned automotive conveyance other than a motor car, where the employer reimburses running and maintenance expenses for mixed official and personal use, Rule 15 provides a ₹3,000 reduction, subject to the same journey-record and certification conditions that apply throughout this table.
The nil valuation for wholly official use is available only when the prescribed journey records and employer certificate are maintained, complete details of date, destination, mileage, and expenditure, along with a certificate confirming the vehicle was used wholly and exclusively for official duty. Without the required documentation, the employee cannot claim the nil valuation, and the applicable perquisite valuation under Rule 15 must be considered instead, even if the car genuinely was used only for work.
- Reusing the HRA “salary” figure for accommodation perquisite valuation — Rule 15 defines salary differently for this purpose, excluding exempt allowances and lump-sum retirement payments; check the specific definition rather than assuming one number works everywhere
- Assuming a company car is automatically nil-value for official use — the nil valuation is available only when the prescribed journey records and employer certificate are maintained; without that documentation, the employee cannot claim the nil valuation, and the applicable perquisite valuation under Rule 15 must be considered instead
- Expecting perquisite valuation to change based on tax regime — it doesn’t. The Rule 15 valuation itself is not dependent on whether you’ve opted for the old or new regime, since this is about what counts as taxable salary, not a Schedule III exemption; your final tax liability on that value still depends on the regime’s slab rates and other rules
- Assuming employer-owned accommodation is always cheaper than leased — as the worked example shows, the actual comparison depends on the real numbers; leased accommodation’s value is capped at the lower of actual rent or 10% of salary, which can undercut the ownership-based percentage
Frequently Asked Questions- perquisite valuation under Income Tax Act 2025
How is rent-free accommodation valued under the Income Tax Act 2025?
For employer-owned property, it’s 10% of salary in cities with population above 40 lakh, 7.5% in cities between 15 and 40 lakh, and 5% elsewhere, reduced by any rent the employee pays. For leased or rented property, it’s the lower of the actual lease rent or 10% of salary, similarly reduced.
What is the company car perquisite value for mixed official and personal use?
₹5,000 a month for cars with engine capacity up to 1.6 litres or electric vehicles, and ₹7,000 a month for larger engines, where the employer meets the running and maintenance costs. Add ₹3,000 a month if a chauffeur is also provided. These values apply regardless of tax regime.
Does perquisite valuation differ between the old and new tax regime?
The valuation prescribed under Rule 15 is not dependent on the employee’s choice of tax regime. However, the employee’s overall tax liability can still differ between the old and new regimes because the regimes have different tax rates, deductions and rebates.
Is a company car exempt if it’s used only for official duties?
The nil valuation for wholly official use is available only when the prescribed journey records and employer certificate are maintained. Without the required documentation, the employee cannot claim the nil valuation and the applicable perquisite valuation under Rule 15 must be considered.
What “salary” figure is used to calculate the accommodation perquisite?
Rule 15 defines it specifically as pay, allowances, bonus, and commission, excluding dearness allowance unless it counts toward retirement benefits, employer PF contributions, exempt allowances, perquisite values themselves, and lump-sum termination or retirement payments. This is a different base than the salary figure used for HRA exemption.
Income From Salaries — Series Index
HRA & LTA: The Two Big Salary Exemptions
The formulas, the conditions, and the one rule that overrides both.
Part 3Other Salary Allowances: What’s Taxable, What’s Not
Official-duty allowances, fixed-limit allowances, and the regime question.
Perquisites, Part 1: Accommodation & Conveyance
Rent-free accommodation and company car valuation under Rule 15.
Perquisites, Part 2: ESOPs, Loans & Other Benefits
Stock options, concessional loans, club memberships, and gifts.
For perquisites such as employer-provided accommodation and a company car, Rule 15 determines the taxable value in the same way whether you choose the old or new tax regime. The regime does not change the perquisite valuation. What changes is the tax you ultimately pay on that taxable value because the two regimes have different tax rates, deductions and rebates.
What has changed under the new rules is the valuation itself. Several perquisite values are higher than under the earlier rules, particularly the company-car values. So if your CTC includes a company flat or car, don’t simply carry forward last year’s calculation — recalculate the perquisite value under Rule 15 for Tax Year 2026-27.
Sources & References
- Income-tax Act, 2025 [Act No. 30 of 2025] — full text, as amended by Finance Act, 2026Income Tax India, incometaxindia.gov.in
- Rule 15 — Valuation of PerquisitesIncome Tax India, incometaxindia.gov.in
Perquisite valuation rules discussed here are summarised for reader convenience. Always cross-check against the official Rule 15 text linked above and consult a Chartered Accountant before relying on this for a filing or CTC-structuring decision.
Disclaimer: This article is for general informational purposes only and does not constitute tax or legal advice. The Income-tax Act, 2025 and related rules are subject to notifications and amendments by the CBDT. Please consult a qualified Chartered Accountant for advice specific to your situation.
